Remuneration is a key element of the employment relationship between employers and employees. Employers set remuneration levels to attract and retain the people they need, while staying within their financial means. In the State sector, annual remuneration adjustments are made through a combination of collective bargaining and internal organisational remuneration processes. These are influenced by Government’s expectations for pay and conditions in the State sector, the organisation’s delivery needs, wider labour market conditions and the department’s budget.
Wage movements across the economy have been slower since the global financial crisis in 2008/09, as indicated by movements in the Labour Cost Index (LCI) produced by Statistics New Zealand (refer to chart: Annual wage growth rates by sector). Public sector annual wage movements tracked below the private sector over the six-year period, Sep-2010 to Jun-2016. Since then the trend has reversed and the June 2017 quarter was the fourth consecutive quarter where annual wage growth in the public sector has exceeded the private sector. Across the Public Service (core government departments) wage growth has been lower still since September 2009; apart from a brief rebound in 2013 this trend continued to September 2016; and in the next three quarters to June 2017 Public Service wage growth had exceeded the private sector.
In the year to June 2017, the LCI measured an increase in wages and salaries of 1.6% in the private sector and 1.9% in the public sector. Within the public sector there was considerable variation in sub-sectors: the overall wage increased in the Public Service by 2.2%; in the education sector by 2.4%; in the health sector by 1.7%; and in local government by 1.7%. By comparison, general inflation as measured by the Consumer Price Index (CPI) increased by 1.7%.
The chart in tab 2 above shows the LCI trend in salary and wage movements of selected sectors since March 2010, on a quarterly cumulative basis. Generally, the gap in wage increases widened between the public and private sectors. By 30 June 2017, public sector wages had increased by 10.9% over the seven-year period compared with 14.0% in the private sector. The CPI increased by 9.6% over the same period (excluding the effect of the GST increase on 1 October 2010 from 12.5% to 15%). Within the public sector over those seven years, Public Service wages increased by 9.4% compared with 10.5% in the education sector, 10.0% in the health sector and 14.9% in the local government sector.
The HRC survey provides information on the base salaries of staff in the Public Service as at 30 June each year. In 2017, the average annual salary was $75,416, an increase of 2.3% from the previous year. This movement is different to the LCI measures discussed in the previous section, as the HRC salary movement is affected by changes in the occupational composition of the workforce, movement in staff pay, service increments, merit promotions, performance-related increases, and salary differences between new and departing staff.
The trend since 2000 is shown in the chart in tab 1 below. Since the global financial crisis in 2008/09 Public Service annual salary growth rate has averaged around 2.3%, about half the average growth rate in the previous nine years.
Median salaries measure the mid-point of the salary distribution (half of the employees are below or above this salary level). It is less effected than average salaries by a small number of employees with very high salaries. The median salary for Public Service employees was $64,343, up 2.0% from the previous year, as shown in the chart in tab 1 above. The growth pattern is similar to that for average salaries, discussed previously.
As at 30 June 2017, 11% of the Public Service workforce were management staff, comprising 27 chief executives (plus one vacancy), 998 tier 2 and 3 managers and 4,358 other managers. This is shown in the table in tab 2 above. The remaining 89% (43,488) were employed in various occupational groups.The average annual increase in base salary in 2017 was around 2.0% for chief executives, 3.1% for managers and 2.5% for other staff. Base salary is used for general comparison because data for individual employees’ superannuation and performance pay are not collected in the HRC survey. A decrease in average salary movement recorded in 2016 for the chief executive group was due to compositional changes with departing and new chief executives. Also, chief executive salaries are generally reviewed only once in mid-term for those with a five-year employment agreement. In contrast, other employees normally have an annual review of their salary.
The chart in tab 1 below shows the ratios of average base salary for the four management levels compared to non-management staff. These ratios have been quite stable since 2012. In 2017, the average base salary of chief executives in the Public Service was 6.1 times that of non-management staff (down from 6.4 times in 2013). The ratios for other management levels were: tier-2 manager at 4.0, tier-3 manager at 2.6 and other manager at 1.7 times relative to non-management staff.
When comparing the average base salary of chief executives to the rest of the staff (including managers) the ratio was 5.5. This ratio has been relatively stable over recent years (though decreasing slightly from 5.8 in 2013).
These Public Service CE/Staff pay ratios are modest compared to the market ratios of publicly listed New Zealand firms, where CEOs are now estimated to be paid 30 to 50 times more than the average wage of workers, according to the recent research on New Zealand pay ratios by Dr Helen Roberts at the Business School of Otago University.http://www.otago.ac.nz/business/research/department/otago119826.html
How much an employee is paid can be influenced by the job size and responsibility of the role. Occupation type is a key factor that influences employee salaries.
Average salary varies widely between different occupations in the Public Service as shown in the chart in tab 2 above. The average salary is highest for Managers, followed by Policy Analysts, ICT Professionals and Technicians, then Legal, HR and Finance Professionals. By contrast, Social, Health and Education Workers, Inspectors and Regulatory Officers, Clerical and Administrative Workers, and Contact Centre Workers have the lowest average salaries.
Some of the lower and higher paid occupations are more prevalent amongst certain gender or ethnic groups. The different occupational composition within the gender and ethnic groups will have an impact on their pay gaps, which are discussed separately in the Diversity chapter.
The average salary varies widely among departments as shown in the chart above in tab 3. As at 30 June 2017, the average salary (excluding chief executives) ranged from $65,701 (Ministry of Social Development) to $134,658 (State Services Commission). Departments that have a higher proportion of staff in operational and service delivery jobs tend to have a lower average salary, e.g. Ministry of Social Development, Department of Corrections, Ministry of Justice, Department of Conservation and Ministry for Vulnerable Children. In contrast, agencies that have a larger proportion of staff in policy roles tend to have a higher average salary (e.g. State Services Commission, Ministry of Defence, The Treasury, Ministry of Transport and Department of the Prime Minister and Cabinet).
In addition to the HRC survey data, SSC also conducts an annual survey of remuneration of Public Service and State sector chief executives, as well as compiling information on the number of staff earning more than $100,000 across a number of State sector organisations.
Cabinet agreed that remuneration paid to Public Service and State sector senior staff should be disclosed annually in one location. This provides transparency for the taxpaying public around the level of remuneration received by senior State servants. The total remuneration of individual chief executives in 2017 will be published in the Senior Pay Report on the SSC’s website later in the year.
The numbers of staff (excluding chief executives) who received $100,000 or more in total remuneration (including base salary plus any superannuation, performance and redundancy payments) are shown in two tables below, one for tertiary education institutions and the other for Public Service departments and selected Crown agencies. As salaries increase each year, more and more employees are moving into the $100,000+ income bracket.
The number in the Public Service and selected Crown entities group increased by 634 or 7.3% in the year to 30 June 2017. This increase was partly due to the impact of redundancies and structural changes within agencies. The number of employees in the tertiary education institutions group increased by 341 or 5.4 in the academic year to 31 December 2016. Wage inflation will increase the number of staff receiving more than $100,000 each year as people move up the salary scale.
- The Treasury publishes annual Financial Statements of the Government of New Zealand each year. These statements include personnel expenditure, which covers total remuneration paid to employees. It includes payments such as salaries, employer contributions to superannuation, long service leave entitlements, performance and severance. Personnel expenses for core government agencies increased by 3.4% to $6,890 million in the 2017 June year, while the total Crown personnel expenditure increased by 2.9% to $22,599 million as shown in the table below.
|Personnel expenditure in core Crown and total Crown, June year 2013-2017|
|Core Crown personnel expenditure ($m)||$6,037||$6,232||$6,552||$6,666||$6,890|
|Annual Change (%)||2.1%||3.2%||5.1%||1.7%||3.4%|
|Total Crown personnel expenditure ($m)||$19,935||$20,484||$21,124||$21,952||$22,599|
|Annual Change (%)||2.4%||2.8%||3.1%||3.9%||2.9%|
Core Crown - includes Public Service departments, Offices of Parliament, the NZS Fund and the Reserve Bank of NZ.
Total Crown - includes the core Crown plus Crown entities and State owned Enterprises.
Expenditure on base salaries is the single largest component of personnel expenditure (others include superannuation, performance payments, redundancy costs, etc.). The total salary cost shown in the chart in tab 1 below is calculated by multiplying the number of FTE employees in the Public Service by the average annual FTE base salary. These are approximate annual salary costs and do not represent total personnel expenditure. The total base salary cost in the Public Service increased by 5.3% ($180 million) to $3,578 million in 2017, up from $3,398 million in 2016. This was driven by a 3.0% increase in FTE staff numbers and a 2.3% increase in average salary.
Total salary cost by occupation group is the product of average base salary and the number of FTE staff in that group. The Manager group had the largest cost at $703 million in the year to 30 June 2017, as shown in the chart in tab 2 above. The second largest cost was for the Inspectors and Regulatory Officers group at $626 million, followed by the Social, Health and Education Workers at $546 million. These three groups accounted for over half of Public Service employee salary costs.
The largest increase in salary cost by occupation group was for Inspectors and Regulatory Officers (up $61m or 10.8%) which was largely due to the return of operation at Mount Eden Prison to the Department of Corrections from a private provider (Serco). The second largest cost increase was for Informational Professionals (up $35m or 8.5%).
Performance payments are defined as any lump sum payments made to staff, usually as a result of an annual performance assessment that exceeded expectations, or some exceptional collaborative or innovative work. In the year to 30 June 2017, a total of 1,539 people or 3.1% of the Public Service employees received a performance payment. The average value for performance payments was $2,647, 2% lower than in 2016 (refer to table below in tab 1).
Twenty-two departments (out of 29) made performance payments in 2017. Sixty percent of performance payments were given by four departments (Ministry of Business, Innovation and Employment, Ministry of Foreign Affairs and Trade, Land Information New Zealand and Department of Internal Affairs.
The large decrease in the number of performance payments in 2014 reflected a change in the remuneration system at the Ministry of Social Development.
As at 30 June 2017, 88.8% of Public Service employees were members of at least one employer-subsidised superannuation scheme (up from 86.7% in 2016). The majority of staff (71.8%) belonged to KiwiSaver, with 18.6% in the State Sector Retirement Savings Scheme (SSRSS). Membership of KiwiSaver has increased steadily as new employees join the Public Service and are auto-enrolled to the scheme. SSRSS and the Government Superannuation Fund (GSF) schemes were closed to new members in 2008 and 1992 respectively and the number of employees in those schemes is decreasing gradually as members leave the Public Service. The chart in tab 2 above shows the trend of Public Service participation in superannuation schemes over the last five years (2013-2017).
In the year to 30 June 2017, 395 employees in the Public Service were made redundant (up from 375 in 2016). The average redundancy payment was $49,011 (down from $52,223 in 2016). The total cost of redundancy decreased by 1% to $19.4 million (from $19.6 million in 2016). Twenty two departments reported redundancies, with 65% occurring in five departments (Ministry of Justice, Ministry of Social Development, Ministry of Education, Ministry of Business, Innovation and Employment, and Department of Internal Affairs). The table and chart in tab 3 above shows the number of redundancies in the Public Service has generally decreased since 2012.
 The LCI is an official measure of wage inflation. It measures changes in salary and wage rates that employers pay for the same job done at the same standard. The LCI does not reflect compositional change in the workforce, service increments, merit promotions and increases relating to performance.
 Data covers Public Service departments (28 in 2016 and 29 in 2017), as well as seven selected Crown entities whose chief executives are under Remuneration Authority jurisdiction, including the Audit Office, New Zealand Secret Intelligence Service, Office of the Clerk, Office of the Ombudsmen, Parliamentary Service, Parliamentary Counsel Office and Parliamentary Commissioner for the Environment. Data also covers tertiary education institutions (29 in 2015 and 28 in 2016).